Everything You Need to Know About Negative Cash Flow

If you’re a new business owner then it’s likely that you’re learning things on the fly. And while there is a multitude of things to learn, one thing that business owners seem to struggle with is negative cash flow. At some point, there will definitely be situations where your expenses will outweigh incoming cash. This can be quite worrisome for businesses, as many people automatically equate this with failure. However, there’s more to negative cash flow than meets the eye.

In fact, negative cash flow doesn’t necessarily have to be a bad thing. If this is something that you’re interested in learning more about, then we’ve got just the thing for you. Here’s a brief breakdown of everything you need to know about negative cash flow.

What Is Negative Cash Flow?

Negative cash flow occurs when a business spends more than it makes within a specific span of time. Essentially, this means that there is an imbalance in the revenue streams. Contrary to what you may initially think, negative cash flow doesn’t automatically mean that you’re at a loss. What it does indicate is that there is an imbalance when it comes to your expenditures and income. 

Now, you may not know this but this is a rather common occurrence as many businesses will experience stretches of negative cash flow. So much so that some may even say that dealing with negative cash flow is inevitable. This is especially true for small businesses, as it takes time and dedication to generate enough income to exceed the initial investments made.

Is Negative Cash Flow Bad?

As we’ve already mentioned, negative cash flow isn’t always a bad thing. All this really means is that you’re spending more money than you receive. The fact of the matter is that it's unrealistic to expect that your business turns a profit every month. This is more true for some businesses than others. 

With that being said, uncontrolled negative cash flow can get quickly out of hand. While it is normal to experience stretches of negative cash flow, this doesn’t mean that you should sit idly by and let run rampant. When it comes to negative cash flow, the key is learning how to manage and deal with it effectively.

How Do You Manage Negative Cash Flow?

While managing negative cash flow can get quite tricky at times, it’s definitely not impossible. The key here is being more mindful and paying more attention to the little things.

To manage negative cash flow effectively, you’ll want to keep track of all your outgoing expenses. This is why making use of the best bookkeeping services is crucial to your business. By reviewing your expenses, you can assess the costs associated with your business and you can determine which costs are necessary and which ones are unnecessary. Small changes like this will go a long way when it comes to managing negative cash flow and reducing your expenses.

Conclusion

As you can see, there’s more to negative cash flow than meets the eye. Hopefully, this article has shed some light on what negative cash flow is and how to best deal with it. While things may seem difficult at first, remember that this is all part of the growing pain associated with operating a business. 

For the best bookkeeping services in New York, Totally Booked has you covered. We streamline your bookkeeping processes, ensuring that everything is kept updated, manageable, and above all, effective. Let’s have a chat—reach out to us today to learn more.